The Doomed Dollar at the QE2 Crossroads

Finance at First Light
Good morning! Here’s what you need to know:


  1. Did Geithner Doom The Dollar? | He said the same thing other countries said before devaluing their currencies.
  2. The QE2 Crossroads | The US is either a kleptocracy or a law-abiding republic with an imploded bank sector.
  3. November Stock-Drop Worries | With QE2 and elections priced in, stock investors may be disappointed.



1. Did Geithner Doom The Dollar?

US Treasury Secretary Timothy Geithner told The Wall Street Journal that he wants to use meetings with G-20 finance ministers to make the global economy less dependent on US consumers, establish “norms” for exchange-rate policies, and convince other nations that the US doesn’t plan to devalue the dollar to regain prosperity. The main theme of Geithner’s speeches recently has been, “We will not devalue.”

Steve Sjuggerud at Daily Wealth says that’s the “scariest political statement.” He reminds everybody that Thailand said just three days before devaluing its currency in 1997, “We will not devalue our currency.” The currency crashed and the Thai stock market fell 90 percent. He remembers that when he and Porter Stansberry focused on emerging markets in the mid-1990s, the “we will not devalue” line got to be a joke around the office: “As soon as we heard ‘we will not devalue’ from an emerging-market finance minister, it was time to bet on a devaluation.”

He thinks that, while it won’t happen as quickly in the US as it did in Thailand and other emerging economies, the dollar will collapse because “Geithner just uttered the magic words of future currency collapse.” Sjuggerud’s instinct, “built on years of watching politicians say the same and end up doing the opposite –- is to do the opposite of what investors did after Geithner’s speech. My instinct is to run from the dollar, for the long run. . . . the future is bright for gold and bleak for the dollar.”


2. The QE2 Crossroads

Annie Lowrey gave a nice rundown at Slate of why so many economists doubt the Federal Reserve’s impending QE2 effort to inject more capital into banks: “the reason for the banks’ current stinginess has little to do with the size of their reserves — banks are sitting on excess capital, as are the big companies they like to lend to. Banks are not making loans because they don’t see anyone or thing worth lending money to. Just because they have $500 billion or even $100 trillion more to lend doesn’t mean they will decide to lend it.”

Charles Hugh Smith framed the situation squarely:

Either there is due process of law or you have a kleptocracy/banana republic oligarchy. At present, that is the decision we face as a nation. If the banking elites and their partners in the Central State (Fed and Treasury) are allowed to “win” and gut the property laws of the states, then the USA will be revealed as a kleptocracy/banana republic oligarchy.

If state laws are upheld, then the “too big to fail” banks are insolvent and they will fail. Then the question of kleptocracy arises once again: will the banks be allowed to fail as per classic capitalism, that is, their owners and managers will have to absorb the losses of that bankruptcy/failure, or will the Central State use its powers to collect taxes and cover the private losses of the bank/financial power elites? Privatizing profits and socializing losses has been the entire game plan since the global house of cards collapsed in 2008.

It’s decision time, citizens. Either the banks/Central State “win” and we are a kleptocracy/banana republic, or they lose and the US mortgage/banking sector implodes and is either formally socialized (i.e. owned lock, stock and barrel by the Central State) or rebuilt from scratch without big banks, federal guarantees and the Fed’s incestuous interventions. (“We create the credit that enables the mortgage, you issue the mortgage, and then we buy the mortgage.”)

To which Karl Denninger added:

The bottom line now is that Bernanke thinks he can continue to paper over this crap with yet more “QE” and other monetary games. He’s wrong. All he’s done, along with Greenspan, is enable not just bad behavior but outright lawlessness, while at the same time savers, senior citizens and those on fixed incomes are seeing their mandatory spending soar, destroying their savings. Instead of using his regulatory power to put a stop to it, he feeds the bankster criminals that in their drug-induced mania have trashed our nation with yet another shot of heroin laced with meth, empowering yet another wild binge of destruction.

Every time Bernanke speaks he talks about “more credit.” But we’re here because instead of capital formation we have shifted to relying on “more credit.” Credit, however, is debt. Those policies are great for the debt merchant including, of course, the Fed, but highly destructive to the capitalist who is trying to provide a good or service in the economy. He is slowly asset-stripped by the banksters through his reliance on these mechanisms, when he should be relying on asset accumulation, that is, capital formation.

By destroying capital formation Bernanke both destroys those on fixed incomes and savers through intentional devaluation of their asset base and wrecks the structures that are necessary for productive investment and economic stability, to say much less of growth.

In a very real sense, Bernanke is throwing Granny and Grandpa down the stairs — on purpose. He is literally threatening those at the lower end of the economic strata, along with all who are retired, with starvation and death, and in a just nation where the rule of law controlled [behavior] instead of being abused by the kleptocrats, he would be facing charges of seditious conspiracy as his policies will inevitably lead to the destruction of our republic.

We’re at a crossroads, folks. Either the rule of law is restored and the games stopped, with the removal from positions of power of those who have enabled the scams and frauds and the fraudsters themselves put out of business and jailed, or the spiral will tighten and the pressure build as capital flight and destruction of final demand continue until we get [a catastrophic explosion.]

— Full article.


3. November Stock-Drop Worries

Paul La Monica at CNN claims that Tuesday’s market sell-off might have been just a taste of things to come since “some experts think stocks could be due for an even bigger drop in early November.”

Why? Because a Republican victory and the Fed’s QE2 are priced into the market. Both coming to pass — or worse, not — could present a classic case of buying the rumor and selling the news. Hank Smith, chief investment officer with Haverford Investments in Radnor, Pennsylvania told La Monica that “it’s fair to wonder if investors are getting all their buying out of the way now and will sit on the sidelines during two months where stocks usually perform well.” Smith asked, “November and December historically are good months for the market. Are we stealing from that right now?”

Have a great day!
Jason Kelly

These periodic “Finance at First Light” briefings present a glimpse into my research. If you would like to read actionable investment advice based on this and other information, please consider subscribing to The Kelly Letter.

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One Comment

  1. Posted November 7, 2010 at 3:09 pm | Permalink

    Geithner and Bernanke (both members of Hillary’s shadow government) continue their insane orgy of spending and looting our economy for their cronies and special interests.

    If Hillary’s puppets, Barack Obama and Kathleen Sebelius, sincerely wanted to lower unemployment (9.5%) and underemployment (18%), they could do, oh so easily:

    • Repeal Obamacare post haste….why spend a trillion dollars to buy health care for the 32 million Americans who are currently receiving it for free right now?

    • Give current Medicaid and Medicare recipients vouchers and let them purchase whatever health insurance fits their needs…this would cut the cost of these corrupt programs by an amazing 70%

    • Sell all government hospitals…Army, Navy, Air Force, VA, US Public Health Service…sell all the government hospitals to the highest bidder…and instead, give this group of patients vouchers and let them buy with the vouchers, whatever health insurance that fits their needs….many of these patients would end up using the same hospitals, doctors and nurses… but for all parties, on a happier, more polite, more professional, outcome orientated, fee for service basis

    • Issue a federal mandate that would allow patients to cross state lines, in order to purchase more competitive health insurance….in other words break up those BCBS monopolies like the BCBS scam that Sebelius and her trial lawyer cronies ran in Kansas, for years and years.

    Do these things and bingo, our economy rights itself almost overnight. But continue as Hillary’s shadow government, including Geithner and Bernanke….continue as Hillary’s Marxists have been manipulating us, and we will continue our national slide into the abyss.

    To learn more about Sebelius’ role in Hillary’s corrupt shadow government go to or just search:
    George Meredith MD Comments

    George Meredith MD
    Virginia Beach

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